Opinions
Paul Gardner, CFA
Yellow Pages Limited
Y-T
TOP PICK
May 20, 2015
Stock price when the opinion was issued
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It was left for dead last year. It has undergone quite a remarkable turnaround. Over 50% of their business is digital advertising and it is heading for 70%. They generate a lot of free cash and they are paying down debt with it. It trades at a low PE. There might be share buybacks in the future.
A real turnaround story. They are making a transition to digital and have brought about 50% of their business over. Did a great job in stabilizing the business, and now are really working on trying to increase the business. They have a “return to growth” plan to make their revenue, earnings and cash flow growth by 2018, and they seem to be on track.
This has evolved from a Yellow Pages directory into a media company. 62% of their revenues come from their media assets. They are repaying their debt very aggressively and improving their capital structure. They’ve done this in France, and are now doing it in Canada. Trading at very attractive EBITDA multiples.
(A Top Pick May 24/16. Down 51.09%.) A major disappointment and a big surprise to everybody. Management was not of a quality that most investors expected. They did not communicate in a very transparent fashion. He took some of the profits when he saw the management team turnover at the end of 2016.
(A Top Pick Nov 22/18, Up 12%)Convertible 8% 2022 bonds He owned the Yellow senior bonds, but then moved into these convertibles. Most of their revenues are in digital, but that has struggled. New management has cut costs a lot until free cash flow now stands around $100 million this year. Their EBITDA margins are now 40% which nobody expected. With that cash, they are paying down a lot of debt.
8% convertible debenture maturing in 2022. Digital is now 55% of this company’s revenue. This is a bond that you can get a 6% rate of return, but you get some upside from the stock which is trading at about 3X EV to EBITDA, and should be trading at 4 or 5 times. The key is paying down their senior debentures which is ahead of convertible debentures, but it is going to get to a point where there are no senior debentures left, with the only debt outstanding being the convertibles. With that you are not only going to get this secure yield of a business that is doing all right, but maybe some upside. You don’t want to pay more than $115 for the bond, because the bid/offer spread is quite large.